Alibaba raised $25 billion in 2014 in what’s still the U.S.’s largest IPO. Now, a U.S.-China fight could kick the Chinese tech giant off Wall Street

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Almost eight years ago, Alibaba founder Jack Ma watched as eight of his customers rang the opening bell at the New York Stock Exchange, marking the first trading day for the Chinese e-commerce company. Alibaba had just completed the world’s largest IPO at the time, raising $25 billion at $68 a share. One trader told Fortune at the time that he’d “never seen anything” like the hype that marked Alibaba’s trading debut. Ma was mobbed by reporters as he wandered the trading floor. Some traders even reportedly wore hoodies in Alibaba’s trademark orange, rather than their traditional suit and tie. Shares surged 38% on the first day of trading.

But Alibaba’s run on the U.S. stock exchange could soon come to an undignified end. On Friday, the U.S. Securities and Exchange Commission added Alibaba to its provisional list of companies that would be delisted from U.S. exchanges under the 2020 Holding Foreign Companies Accountable Act (HFCAA), meant to force U.S.-listed Chinese firms to open their books to U.S. inspectors.

The SEC has threatened to boot Chinese firms from U.S. exchanges for years, and it’s even named other prominent firms—JD.com, video game publisher NetEase, agricultural platform Pinduoduo, EV maker NIO, and food retailer Yum China—among the 160 companies it’s identified as violating the HFCAA. But Alibaba’s notoriety, Ma’s flamboyance, and the firm’s special place in Wall Street history make the Chinese internet giant the new face of the $1.3 trillion delisting saga and put the looming crisis front and center in a way it hasn’t been before.

A fight over (auditing) access

The SEC’s threat to delist Alibaba is a new chapter in a years-long dispute between U.S. and Chinese regulators over how to audit Chinese companies listed in the U.S. The fight over auditing requirements puts all 261 U.S.-listed Chinese companies, with a combined $1.3 trillion in market capitalization, at risk of being forced to leave U.S. markets.

Technically, Chinese companies listed in the U.S. are supposed to make their books available to U.S. regulators, but Beijing has barred such access under national security concerns. The U.S. had let non-compliant firms slide until 2020, when Congress passed the HFCAA, which stipulates that if a company’s auditor does not allow U.S. inspections for three consecutive years, the company will be forced off U.S. exchanges.

Since the law’s passage, Beijing and Washington have tried to strike a compromise that would allow U.S.-listed Chinese companies to stay put. Earlier this year, Beijing offered to grant foreign auditors access to Chinese documents, though it also reserved the right to redact classified or security-related information if it deemed fit. Last week, the Financial Times reported that Beijing was considering establishing a multi-tier system categorizing the national security risk of overseas-listed companies, with U.S. regulators granted full access to companies that have non-sensitive data. (China’s securities regulator denied it was developing such a classification.) U.S. regulators are skeptical that a compromise is possible, with SEC Chair Gary Gensler saying in July that he was “not particularly confident” about the prospects for a deal, saying that the law requires full access.

On Wednesday, Gensler said that the U.S. would not send auditing inspectors to China or Hong Kong until Beijing agreed to grant auditing access, which needs to happen “soon” if inspectors had “any chance” of approving documents this year. 

In with a bang, out with a whimper?

In Alibaba’s case, Beijing may consider the giant e-commerce company with data on over a billion users too sensitive to receive foreign scrutiny, teeing the firm up for delisting. “Every feature of Alibaba points to the fact that its time in the U.S. could soon be over,” Liqian Ren, director of ModernAlpha at Wisdom Tree Asset Maangement, previously told Fortune before Alibaba was added to the SEC’s list. 

On Monday, Alibaba said that it would “strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange” in a statement filed to Hong Kong Exchange and Clearing, where the e-commerce firm has a secondary listing. Alibaba shares were down 3% in Hong Kong trading on Monday, even as the broader Hang Seng Index was flat.

Alibaba’s exit from Wall Street, if it happens, would be a dramatic change in fortune from when it arrived. Alibaba’s 2014 IPO is still the world’s second-largest initial public offering, only Saudi Aramco’s $26 billion IPO in 2019 has topped it. Alibaba’s IPO remains the largest listing ever in the U.S.

Alibaba’s IPO was the premier listing in what became a wave of debuts by Chinese firms between 2013 and 2021 as U.S. investors raced to cash in on China’s tech boom. U.S. institutional investors alone hold $200 billion in Chinese American Depository Receipts, which allow American investors to buy shares in Chinese firms.

Didi Global’s $4.4 billion IPO in June 2021 ended the crush of Chinese IPOs in the U.S. Data security concerns from Chinese regulators led to a crackdown on the ride-hailing company and greater scrutiny on overseas listings.

As U.S.-China relations soured, several companies listed on U.S. exchanges returned to China to launch secondary “homecoming” listings. Alibaba itself launched a secondary listing in Hong Kong in 2019, raising $12.9 billion. 

On July 26, Alibaba announced that it would upgrade its secondary listing in Hong Kong to a primary listing. By upgrading its listing, Alibaba might be able to take advantage of a scheme that allows direct access to mainland Chinese investors, with wealth management firm Bernstein predicting that the e-commerce firm could get as much as $21 billion in investor inflows from mainland China. An upgraded listing can also serve as a back-up plan for Alibaba if it’s ejected from Wall Street.

The threat of delistings may encourage other U.S.-listed Chinese companies to launch primary listings in Hong Kong, which would boost the city’s flagging stock market. Two other Chinese firms on the SEC’s list—e-commerce platform Dingdong and cloud computing company Kingsoft Cloud—are reportedly following Alibaba’s lead in launching primary listings in Hong Kong.